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<nettime> NYT: market shock therapy
nettime's_roving_reporter on Sun, 7 Jul 2002 23:04:23 +0200 (CEST)


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<nettime> NYT: market shock therapy


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<http://www.nytimes.com/2002/07/07/business/07SHRI.html>

Portfolios Depressed, Traders Seek Therapy
By ALESSANDRA STANLEY

Picture a Wall Street trader striding through the doctor's waiting room
and flopping down on the couch. He rages about the collapse of WorldCom,
then falls silent.

His therapist leans forward and asks quietly, "And how did that make you
invest?"

Psychologists are not new to company boardrooms or trading floors. In
the 1990's, the science of market psychology became an industry as
financial institutions, and especially hedge funds, hired psychologists
to hone their competitive edge -- be it analyzing investor choices,
coaching money managers or revealing clients' unconscious desires.

The use of psychotherapy by market professionals to find their inner
trader, however, is something else.

"I had a client who grew anxious every time he had to sell a holding, he
kept saying `I can't seem to let go,' " Richard A. Geist, president of
the Institute of Psychology and Investing in Newton, Mass., said. Dr.
Geist, who teaches at the Harvard Medical School, is both a
psychotherapist and a financial adviser. "I asked him what that reminded
him of," Dr. Geist said. "He remembered that as a child he had trouble
letting go of his mother when it was time to go to school."

For such patients, the classic Freudian disorder carries a new economy
twist: divestiture anxiety.

It is hardly surprising that in the current economy, financiers are
seeking psychological counseling or pharmaceutical solace.

Many firms bring in psychologists as consultants for money managers, but
so far the companies do not appear to be ordering their employees to
seek help. Some traders, themselves, however, feel the need.

Their turn to therapy is a little like struggling athletes who seek out
sports psychologists to improve their game.

One trader, speaking only on the condition of anonymity, said he went to
a therapist to overcome his love/hate relationship to risk.

The trend of seeking therapy springs from two distinct schools of
psychology that flourished during the boom. One is behavioral finance,
which studies the irrational choices most investors make. Behavioral
economists like Richard H. Thaler of the University of Chicago have set
up mutual funds based on their insights into market psychology. The
other is wealth therapy -- psychologists like Suze Ormond ("The Courage
to Be Rich," Riverhead Books, 1999), who help clients cope emotionally
and practically with windfall wealth.

Now that the bubble has burst, investors are not seeking the courage to
be poor. Patients want their heads examined to regain their wealth.

Behavioral economists warn of "the endowment effect," the tendency of
investors to endow stock they own with more value than it has. (A
variation on the old Neopolitan saying, "Even a cockroach is beautiful
to its mother.") A corollary is that even seasoned investors place too
much faith in tips and insider hints.

"My analysis and my gut told me that I should sell my Tyco shares," one
New York business mogul confessed. "But I knew someone on the board who
said that Dennis Kozlowski was a decent guy, and I allowed my judgment
to be swayed until it was too late," he said, referring to L. Dennis
Kozlowski, Tyco International's former chief executive who has been
indicted for tax evasion and evidence tampering. The mogul remains
wealthy, but has become an avid student of market psychology -- including
his own.

There are, however, traders who argue that the financial world in the
1990's relied too much on therapists -- and antianxiety medication.

"My own view is that one reason the investor class, including me, missed
the downside was serotonin," James J. Cramer, a former hedge fund
manager and author of "Confessions of a Street Addict" (Simon &
Schuster, 2002), said, referring to a substance in the brain that
antidepression drugs augment. "Prozac and all those other drugs banish
the `this is the end of the world' thoughts," Mr. Cramer explained.
"Which means you are not as anxious as you should be about an obvious
down side."

Mr. Cramer said he nevertheless drew a lesson from one tenet of
behavioral finance: he is not the only person who feels disproportionate
rage and sorrow over losses. Research by behavioral economists suggests
that most people feel twice the pain over a financial loss as they do
pleasure in an equivalent gain.

"Sudden wealth syndrome" was a term coined by the Money, Meaning and
Choices Institute in the San Francisco suburb of Kentfield, a consulting
firm that was spawned by the dot-com rush. A co-founder, Joan DiFuria,
who swapped an 18-year career as a metal commodities trader to become a
psychologist, spoke of mass hysteria. "When the market was up, our
entire culture was caught up in power and greed and winning the big
lottery," she said.

Treatment varies. Dr. Geist, the psychotherapist and financial adviser,
holds 50-minute sessions with individual clients. Van K. Tharp, a
psychologist and "stock-trading coach," who 10 years ago founded The
International Institute of Trading Mastery Inc. in the Research Triangle
town of Cary, N.C., holds workshops and sells books and tapes. Until he
got too busy, Dr. Tharp said, he could do psychological evaluations
based on a lengthy questionnaire and a 10-minute phone consultation.

He says his clients come from all over the world. "Experienced traders
begin to realize it's not just about outside factors," Dr. Tharp said.
"Their performance is them and they are obviously making mistakes. Once
that sets in, they are willing to get a coach to help them."

Dr. Tharp himself, however, had to seek legal coaching two years ago,
when investors in the Maricopa hedge funds, run by David M. Mobley Sr.,
of Naples, Fla., and endorsed by Dr. Tharp, sued Dr. Tharp for
negligence. Dr. Tharp had treated Mr. Mobley for overconfidence, and was
so pleased with his progress that he invested money in Maricopa, and
encouraged his other clients to follow suit. Mr. Mobley was convicted
last year of cheating investors out of more than $50 million.

Dr. Tharp said his own suit was recently settled, and that he has
learned a lesson from his own mistaken overconfidence in recommending
mutual funds. "I'll never do that again," he said.

Not all money therapists are so deeply involved in their clients'
finances. Richard Trachtman, a New York-based clinical social worker and
psychotherapist who specializes in money issues, said he does not
operate as a financial adviser. He helps clients uncover their
deep-rooted taboos about money.

But he can help clients better understand what kind of portfolio best
suits their psyches. "There are some people who should invest very
conservatively through mutual fund diversification and the like," he
said. "Other people can enjoy the risk without becoming devastated by
loss."

John Jacobs, a New York psychologist whose practice is mainly focused on
couples and families, has also developed expertise in wealth issues —
many of his clients are business tycoons and money is often a ruling
preoccupation.

"I think the real illness of the age is the loss of perspective," Dr.
Jacobs said, referring to patients whose self-esteem rises and falls
with the Nasdaq or Dow. Even after a 40 percent drop in their holdings,
he says, they have no ability to appreciate that they are still very
rich. Dr. Jacobs tries to bring back a realistic assessment.

Some losses, however, are sharper than others. "I worked with a
gentleman who was worth $800 million and ended up worth only $20
million, and that did make a huge difference in his life," Dr. Jacobs
said.

"It wasn't all bad," he added. "He found out who his real friends are."

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